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I argued in this space three months ago that gold traders should "take heart," despite gold's disappointing behavior over the several weeks prior to then, since contrarian analysis confidently predicted that higher prices were on their way. (See Hulbert on Markets, "Gold Can Finally Redeem Itself," June 8, 2012)

And though it took the market longer than I had imagined to do so, in recent weeks it finally did respond: Gold is now $140 an ounce higher than it was then.

Unfortunately, contrarian analysis is not nearly as positive today about gold's prospects as it was three months ago. That's because, in the wake of the recent rally, gold timers have jumped on the bullish bandwagon, all but destroying the veritable wall of worry that would otherwise support a continuation of gold's recent rally.

Consider the average recommended gold market exposure among a subset of short-term gold timers tracked by my Hulbert Financial Digest (as measured by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). It currently is 54%.

To put this current level in context, consider that as recently as the last week of July, the HGNSI stood at minus 14.8%, which meant that at that time the average short-term gold timer was recommending that his clients allocate 14.8% of their gold trading portfolios to shorting the market -- an aggressive bet that the market would decline. Furthermore, the HGNSI was still in negative territory on August 22.

In classic contrarian fashion, the market responded to the strong wall of worry that those negative readings represented by rallying strongly. But that wall of worry has all crumbled.

Another revealing comparison with the HGNSI's current level comes with where this sentiment index stood in February, when gold bullion rose to the nearly the $1,800 level. The HGNSI that month never got as high as it is now, and its average level for the full month was 40.8%.

That the sentiment index is higher today than then, even though bullion itself is lower, is yet another indication of the bullish enthusiasm that now permeates the gold trading arena.

These various data points, taken together, suggest that the gold market has gotten ahead of itself. That's why contrarian analysis now concludes that a short term pullback is now more likely.

How much of a pullback? Contrarian analysis typically does not try to answer this question, since the key to answering it is the speed with which the bulls throw in the towel in response to whatever weakness that materializes.

For example, if the gold traders stubbornly hold on to their new-found bullishness in the wake of any pullback, that would suggest the gold market will have to undergo a more severe correction in order to wring the excessive bullishness out of the marketplace.

If the bulls quickly run for the exits, in contrast, a shallower correction becomes more likely.

Since 1985, however, according to an analysis of the HGNSI, the average correction in the wake of high readings lasts between one and three months.

That means that, if the gold market behaves in "average" fashion, we should expect bullion to be lower than it is today between early October and early December.